NEW YORK, Dec 3 (Reuters) - U.S. stocks fell on on Monday,
with the S&P 500 and Nasdaq erasing early gains as disappointing
U.S. factory numbers curbed optimism spurred by positive data on
China's economy.

Manufacturing in the United States surprisingly contracted
in November, according to the Institute for Supply Management,
dropping to its lowest level in more than three years. Economic
data has been mixed in recent months, sparking new worries about
the pace of economic growth at a time when investors are already
concerned about the "fiscal cliff" issue in
Washington.[ID:nL 1 E8N3580]

Markets had opened higher as output by China's factories
grew in November for the first time in more than a year, data
showed. Investors look to strength from China, the world's
second-largest economy, to offset weak growth in the United
States and Europe.

Still, the fiscal cliff remains investors' primary focus,
with political haggling continuing over how to deal with large
automatic spending cuts and tax hikes scheduled to kick in next
year that could tip the U.S. economy back into recession.

"Markets have lately been more optimistic than what the
reality of the negotiations seems to be, and the reality of that
may be starting to set in," said David Carter, chief investment
officer at Lenox Wealth Advisors in New York. "Until the cliff
gets resolved, market upside may be capped while the downside
isn't constrained."

The Dow Jones industrial average was down 39.57
points, or 0.30 percent, at 12,986.01. The Standard & Poor's 500
Index was down 3.97 points, or 0.28 percent, at 1,412.21.
The Nasdaq Composite Index was down 3.22 points, or 0.11
percent, at 3,007.02.

The S&P 500 briefly moved above its 50-day moving average at
about 1,420, a level that the index has been below since Oct.
22, and now serving as a key resistance point for equities.

U.S. Treasury Secretary Timothy Geithner pushed Republicans
on Sunday to offer specific ideas to cut the deficit. He
predicted that they would agree to raise tax rates on the rich
to obtain a year-end deal to avoid the fiscal cliff.

Among other factors serving to offset the ISM report were
two developments in the euro zone: Spain formally requested the
disbursement of more than $50 billion of European funds to
recapitalize its crippled banking sector, while Greece said it
would spend 10 billion euros ($13 billion) to buy back bonds in
a bid to reduce its ballooning debt.

The PHLX Europe sector index rose 0.3 percent.

"The general feeling underneath here is things are improving
- Europe appears to be improving, at least politically getting
their act together," said Paul Mendelsohn, chief investment
strategist at Windham Financial Services in Charlotte, Vermont.

Dell shares gained 4.4 percent to $10.06. The stock
was one of the biggest percentage gainers in both the S&P 500
and Nasdaq 100 after Goldman Sachs upgraded its view on
the stock to "buy" from "sell."

Advanced Micro Devices was the S&P's top gainer,
rising 8.2 percent to $2.38. Option traders appeared to be
betting on further gains ahead. Early options order flow was
focused on upside April calls, including a sweep of 3,594 April
$3.50 strike calls for 16 cents per contract when the market was
14 cents to 16 cents, said WhatsTrading.com options strategist
Frederic Ruffy.

Retail stocks were among the weakest of the day, with J.C.
Penney Co off 3.4 percent to $17.33, and Big Lots Inc
down 2.5 percent at $27.47. Staples Inc lost
1.6 percent to $11.51. Consumer discretionary names tend to
underperform during periods of economic uncertainty as consumers
focus on core purchases.

Singapore Airlines said it was in talks with
interested parties to sell its 49 percent stake in British
carrier Virgin Atlantic, with sources saying that Delta Air
Lines was among the potential suitors. Delta shares fell
2.1 percent to $9.79.